If you are holding Premium Bonds, I think it is time for a rethink. Just as I predicted last week, National Savings and Investments (NS&I) said yesterday that the prize rate fund will drop from the April draw.
It is cutting it from 4pc to 3.8pc. I know Premium Bonds offer the chance of a monthly prize. And the odds of winning are not decreasing – staying at 22,000 to one.
But the size of any win is likely to be smaller from April. NS&I will pay out less but raise the number of prizes by cutting the number of £50 to £100,000 awards (down a total of 326,113) while hiking the number of £25 ones by 362,988, up to 2,170,903 from 1,807,915. The two £1 million monthly jackpots will remain.
It estimates it will pay out £411,118.825 in April, down from £430,052,425 this month and the number of prizes will rise from 5,864,353 to 5,901,299.
If you haven’t used your cash Isa for this tax year, I would look at switching some Premium Bond holdings into one of them for the certainty of tax-free interest.
After all, you can earn a guaranteed 5pc a year from the best Isas at the moment.
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Other cuts will see its easy-access Direct Saver going down from 3.5pc to 3.3pc and its Income Bonds fall to 3.26pc from 3.44pc, both from March 5.
This rate is not bad compared with those offered in similar building society branch-based accounts, but it is well below the 4.25pc to 4.5pc you can get elsewhere online. NS&I has also raised the rate on its easy-access Direct Isa to 3.5pc from 3pc to support savers looking to make the most of this year’s £20,000 cash Isa allowance, which must be used by April 5.
But NS&I knows it won’t cost it much to increase the rate. It has a meagre £4.5 billion in its account, way below the amount in Direct Saver (around £27 billion), Income Bonds (£17 billion) and Premium Bonds (£129 billion).
Plus, it’s hardly going to attract a huge number of savers as the rate is still not competitive.
Despite the rise, it is not a particularly attractive proposition, but it could suit those who love the safety of the government-backed NS&I.
Furthermore, it is not flexible, so any money you take out and then replace counts towards your Isa allowance for this tax year.
And NS&I still refuses to accept transfers into the account – so you can’t switch money you have in a lower paying Isa account into this one.
If I had money in its Direct Saver, I would look to transfer some over into the Direct Isa for a better tax-free rate – assuming I had not already used my £20,000 cash Isa allowance this year.
